The second FEMA trailer product-liability trial has been postponed due to talk of a settlement for thousands of claims from bankrupt defendant Fleetwood Enterprises Inc.

The Riverside, Calif.-based trailer manufacturer and its insurers are said to be negotiating a settlement even though a jury in September rejected a New Orleans’ family’s claim that a FEMA-supplied trailer built by Gulf Stream Coach Inc. exposed them to dangerous levels of carcinogenic formaldehyde, according to the Courthouse News Service.

Just days after the catastrophe of Hurricane Katrina in 2005, FEMA awarded $170 million in contracts to Fleetwood to provide 7,500 travel trailers and 3,000 manufactured homes to refugees from the storm.

Fleetwood was one of several manufacturers to receive FEMA contracts, and was awarded the second-highest dollar amount; Gulf Stream Coach received the largest order.

FEMA is not a party to either lawsuit – neither the one that Gulf Stream fended off in September, nor the second one, against Fleetwood.

The second bellwether trial was slated to start next Monday.

Plaintiff Elisha Dubuclet claims that formaldehyde leaking from the FEMA trailer where her family lived for 18 months aggravated her daughter’s eczema and increased her risk of cancer.

The complaint was taken from a batch of consolidated complaints. Class-action status was denied last year by presiding U.S. District Judge Kurt D. Engelhardt.

The Wall Street Journal reported in December 2008 that plaintiffs’ lawyers were disappointed, though “not surprised” by Engelhardt’s rejection of class certification, considering the number and variety of cases alleging formaldehyde-related ailments.

Several thousand lawsuits have been filed and more are expected.

“We’re looking forward to putting before a jury some good, instructive bellwether cases,” attorney Gerald Meunier told the Journal. “We’ll see what they do with those, and we’ll know more about how to conclude all of the other litigation.”

Fleetwood Enterprises filed for bankruptcy in March this year and sold its motorhome division to a private equity group.

A September article posted on rvbusiness.com paraphrased plaintiffs’ attorney Tony Buzbee as saying that the court allowed the formaldehyde lawsuit against Fleetwood Enterprises to proceed despite its bankruptcy because insurance money is available to pay any potential settlement.

Fleetwood Enterprises is the lone defendant in the Dubuclet complaint.

The Washington Post reported in 2007 that a man in Slidell, La., “was found dead in his trailer on June 27, 2006, after complaining about the formaldehyde fumes. In a conference call about the death, 28 officials from six agencies recommended that the circumstances be investigated and trailer air quality be subjected to independent testing. But FEMA lawyers rejected the suggestions, with one… cautioning that further investigation not approved by lawyers ‘could seriously undermine the Agency’s position’ in litigation.”

Later, House Oversight and Government Reform Committee Chairman, Henry A. Waxman, D-Calif., blasted FEMA’s indifference to storm victims and said the situation was “sickening.” He said the documents “expose an official policy of premeditated ignorance” and added that “senior officials in Washington didn’t want to know what they already knew, because they didn’t want the legal and moral responsibility to do what they knew had to be done,” according to the Post.

FEMA blames trailer manufacturers for the formaldehyde in the trailers. Cheaper, substandard wood products used in trailers assembled in a rush to meet production targets increased emissions of the carcinogen, industry officials and analysts said.

Trailer manufacturers say that because federal guidelines were inconsistent, they relied on suppliers, who are responsible for any shoddy materials they provided.

Gulf Stream was cleared in September in the first bellwether trial; three other bellwether cases are set for trial, involving Keystone RV Co., Forest River Inc. and Recreation by Design Inc. The bellwether trials are meant to indicate likely outcomes for all plaintiffs, in turn fostering settlement talks between parties.